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AUXILIUM PHARMACEUTICALS, INC.

40 West Valley Stream Parkway

Malvern, Pennsylvania 19355

Dear Stockholder:

You are cordially invited to attend the 2007 Annual Meeting of Stockholders of Auxilium Pharmaceuticals, Inc. at 9:00 a.m., local time, on Wednesday, June 13, 2007, at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355.

The Notice of Annual Meeting of Stockholders and Proxy Statement, which describe the formal business to be conducted at the meeting, accompany this letter. Your Proxy Card is also included in the materials accompanying this letter. Lastly, the Company’s 2006 Annual Report to Stockholders is enclosed for your information.

All stockholders are invited to attend the meeting. Whether or not you plan to attend the meeting, you are urged to vote by proxy by completing, signing and dating the enclosed Proxy Card and returning it as soon as possible in the enclosed return envelope. No postage need be affixed if the return envelope is mailed in the United States. Your shares will be voted in accordance with the instructions you have given on your Proxy Card.

Your shares cannot be voted unless you sign, date and return the enclosed Proxy Card or attend the meeting in person. Regardless of the number of shares you own, your careful consideration of, and vote on, the matters before the stockholders is important.

Thank you for your continued support.

Sincerely,

Armando Anido

Chief Executive Officer and President

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AUXILIUM PHARMACEUTICALS, INC.

40 Valley Stream Parkway

Malvern, Pennsylvania 19355

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 13, 2007

The Annual Meeting of Stockholders (the “Meeting”) of Auxilium Pharmaceuticals, Inc., a Delaware corporation (the “Company”), will be held at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355 on Wednesday, June 13, 2007, at 9:00 a.m., local time. The purpose of the Meeting shall be to consider and act upon the following matters:

The holders (the “Stockholders”) of the Company’s common stock of record at the close of business on April 16, 2007 (the “Record Date”), are entitled to notice of and to vote at the Meeting, or any adjournments or postponements thereof. A complete list of such Stockholders will be open to the examination of any Stockholder at the Company’s principal executive offices at 40 Valley Stream Parkway, Malvern, Pennsylvania 19355, for a period of 10 days prior to the Meeting and at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355 on the day of the Meeting. The Meeting may be adjourned from time to time without notice other than by announcement at the Meeting; provided, however, if the adjournment is for more than 30 days after the date of the Meeting, or if after the adjournment a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting is required to be given to each Stockholder.

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED RETURN ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE ENCLOSED RETURN ENVELOPE IS MAILED IN THE UNITED STATES. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY CARD SHOULD BE SIGNED AND RETURNED TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.

By Order of the Board of Directors,

Jennifer Evans Stacey, Esq.

Secretary

Malvern, Pennsylvania

April 30, 2007

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AUXILIUM PHARMACEUTICALS, INC.

40 Valley Stream Parkway

Malvern, Pennsylvania 19355

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 13, 2007

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ANNUAL MEETING OF STOCKHOLDERS

We have sent you this Proxy Statement and the enclosed Proxy Card because the Board of Directors (the “Board”) of Auxilium Pharmaceuticals, Inc., (referred to herein as “Auxilium”, “we”, “us” or “our”) is soliciting your proxy to vote at our Annual Meeting of Stockholders to be held on Wednesday, June 13, 2007, (the “Meeting”) at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355, at 9:00 a.m., local time, and at any adjournment or adjournments thereof.

In addition to solicitations by mail, our directors, officers and regular employees, without additional remuneration, may solicit proxies by telephone, e-mail and personal interviews. All costs of solicitation of proxies will be borne by us. Brokers, custodians and fiduciaries will be requested to forward proxy soliciting material to the owners of stock held in their names, and we will reimburse them for their reasonable out-of-pocket expenses incurred in connection with the distribution of proxy materials.

We are mailing the Notice of Annual Meeting of Stockholders, this Proxy Statement and Proxy Card to our stockholders of record as of April 16, 2007 (the “Record Date”) for the first time on or about April 30, 2007. In this mailing, we are also including our Annual Report to Stockholders for the fiscal year ended December 31, 2006 (“Fiscal 2006”). In addition, we have provided brokers, dealers, banks, voting trustees and their nominees, at our expense, with additional copies of our Annual Report so that our record holders could supply these materials to the beneficial owners of shares of our common stock as of the Record Date.

Information About the Meeting

When is the Meeting?

The Meeting will be held at 9:00 a.m., local time, on Wednesday, June 13, 2007.

Where is the Meeting?

The Meeting will be held at The Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355.

What is the purpose of the Meeting?

At the Meeting, stockholders will act upon the matters listed in the Notice of Annual Meeting of Stockholders and any other matters that properly come before the Meeting.

Who can attend the Meeting?

All stockholders as of the Record Date, or their duly appointed proxies, may attend the Meeting. Each stockholder may be asked to present valid picture identification, such as a driver’s license or passport. If you hold your shares through a broker or other nominee, you must bring a copy of a brokerage statement reflecting your stock ownership as of the Record Date. Everyone must check in at the registration desk at the Meeting.

What constitutes a quorum?

A quorum of stockholders is necessary to hold a valid meeting for the transaction of business. The presence at the Meeting, in person or by proxy, of the holders entitled to cast at least a majority of votes which all stockholders are entitled to cast as of the Record Date will constitute a quorum. Broker non-votes, abstentions and votes withheld count as shares present at the Meeting for purposes of a quorum. On the Record Date, there were 36,234,467 shares of our common stock outstanding.

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What are the recommendations of the Board?

Unless you instruct otherwise on your Proxy Card, the persons named as proxy holders on the Proxy Card will vote in accordance with the recommendations of the Board. The Board’s recommendations are set forth below.

The proxy holders will vote in their own discretion with respect to any other matter that properly comes before the Meeting or any adjournments or postponements thereof.

Information About Voting

Who can vote at the Meeting?

All stockholders of record at the close of business on the Record Date, April 16, 2007, are entitled to vote at the Meeting and any adjournments or postponements of the Meeting.

What are the voting rights of the holders of the common stock?

Holders of our common stock will vote on all matters to be acted upon at the Meeting. Each outstanding share of common stock will be entitled to one vote on each matter to be voted upon at the Meeting.

How do I vote?

You may attend the Meeting and vote in person. Alternatively, you may vote your shares by proxy by mail. To vote by mail, simply complete, sign and date your Proxy Card and return it in the postage-paid return envelope provided for receipt by us prior to June 13, 2007 (Proxy Cards received on or after June 13, 2007 will not be counted). Please note that by casting your vote by proxy you are authorizing the individuals listed on the Proxy Card to vote your shares in accordance with your instructions and in their discretion with respect to any other matter that properly comes before the Meeting.

If you want to vote in person at the Meeting and you hold shares of our common stock in street name, you must obtain a Proxy Card from your broker and bring that Proxy Card to the Meeting, together with a copy of a brokerage statement reflecting your stock ownership as of the Record Date and valid picture identification, such as a driver’s license or passport.

Is my vote confidential?

Yes. Proxy Cards, ballots and voting tabulations that identify stockholders are kept confidential except in certain circumstances where it is important to protect the interests of Auxilium and its stockholders.

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What if I do not indicate my preference on the Proxy Card?

If you do not indicate how you would like your shares to be voted for a particular proposal, your shares will be voted as follows:

As to other matters as may properly come before the Meeting or any adjournments or postponements thereof, the persons named in the proxy will be authorized to vote upon such matters in their own discretion.

Can I change my vote after I return my Proxy Card?

Yes. Even after you have submitted your Proxy Card, you may change your vote at any time before the proxy is exercised by filing with the Secretary of Auxilium either a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy holders will be suspended if you attend the Meeting in person and request to recast your vote. Attendance at the Meeting will not, by itself, revoke a previously granted proxy. For information regarding how to vote in person, see “How do I vote?” on page 3.

What vote is required to approve each proposal?

Proposal 1: Election of Directors. The affirmative vote of a plurality of the votes cast at the Meeting is required for the election of directors, provided a quorum is present in person or by proxy. A plurality means that the eight nominees receiving the most votes for election to a director position are elected as directors. Votes that are withheld and broker non-votes will be excluded entirely from the vote to elect directors and have no effect. Thus, the eight candidates with the most affirmative votes will be elected at the Meeting.

Proposal 2: Approval of the amended and restated Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan. The affirmative vote of a majority of the votes cast at the Meeting is required to adopt and approve the amendment and restatement of the Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan to (i) increase the number of shares of Company common stock authorized for issuance under the Plan from 6,000,000 to 8,000,000 shares, (ii) limit the number of shares that may be issued under the Plan pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights) granted after June 13, 2007 to 750,000, and (iii) make other appropriate changes, provided a quorum is present in person or by proxy. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm. The affirmative vote of a majority of the votes cast at the Meeting is required to ratify the selection by the Audit Committee of the Board of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for Fiscal 2007, provided a quorum is present in person or by proxy. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

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What is a broker non-vote?

A broker non-vote occurs when a broker submits a Proxy Card with respect to shares of common stock held in a fiduciary capacity (typically referred to as being held in “street name”), but declines to vote on a particular matter because the broker has not received voting instructions from the beneficial owner. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include the election of directors and ratification of auditors. Non-routine matters include matters such as the approval of, and amendments to, stock plans. Therefore, if you do not give your broker or nominee specific instructions, your shares will not be voted on non-routine matters and may not be voted on routine matters. Shares represented by such “broker non-votes” will, however, be counted in determining whether there is a quorum.

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DISCUSSION OF PROPOSALS

Proposal 1: Election of Directors

At the Meeting, eight directors are to be elected to hold office until the next Annual Meeting of Stockholders after his or her election or until his or her resignation or removal.

The affirmative vote of a plurality of the votes cast at the Meeting is required for the election of directors. A plurality means that the eight nominees receiving the most votes for election to a director position are elected as directors. Votes may be cast (i) FOR ALL NOMINEES, (ii) WITHHOLD FOR ALL NOMINEES or (iii) FOR ALL NOMINEES except as noted by you on the appropriate portion of your Proxy Card. Votes that are withheld and broker non-votes will be excluded entirely from the vote to elect directors and have no effect. Thus, the eight candidates with the most FOR votes will be elected at the Meeting.

All of the nominees whose names and biographies appear below are at present our directors. In the event any of the nominees should become unavailable or unable to serve as a director, it is intended that votes will be cast for a substitute nominee designated by the Board. The Board has no reason to believe that the nominees named will be unable to serve if elected. Each nominee has consented to being named in this Proxy Statement and to serve if elected.

The following are the nominees for election to our Board, and each of these nominees is a current member of the Board:

The principal occupations and business experience, for at least the past five years, of each director and nominee is as follows:

Rolf A. Classon was appointed as the Chairman of our Board of Directors in April 2005. He served as Vice Chairman from March 2005 to April 2005 and has served as one of our directors since May 2004. Since March 2006, Mr. Classon has served as Chairman of the Board of Directors of Hillenbrand Industries, Inc. Mr. Classon served as Interim Chief Executive Officer of Hillenbrand Industries, Inc. from May 2005 until March 2006 and as Vice Chairman of the Board of Directors from December 2003 until May 2005. Mr. Classon joined the Board of Directors of Hillenbrand Industries, Inc. in May 2002. From October 2002 until July 2004, Mr. Classon was Chairman of the Executive Committee of Bayer HealthCare AG, a subsidiary of Bayer AG, and served as President of Bayer’s Diagnostic Division and head of Bayer’s Worldwide Business Group—Diagnostics since 1995. Mr. Classon served as a member of the Board of Directors of Ista Pharmaceuticals, Inc. from 2004 until the first quarter of 2007 and currently serves as a member of the Board of Directors of PharmaNet Development Group, Inc., Millipore Corporation, and Enzon Pharmaceuticals, Inc. Mr. Classon received his Chemical Engineering Certificate from the Gothenburg School of Engineering and a Swedish equivalent to an M.B.A. from the University of Gothenburg.

Al Altomari has served as one of our directors since December 2005. Mr. Altomari currently is the Chief Operating Officer of Barrier Therapeutics, Inc. He joined Barrier Therapeutics, Inc. in August 2003. Previously,

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Mr. Altomari held progressively senior positions at Johnson & Johnson companies during his 21 years at that company. His most recent role at Johnson & Johnson companies was as General Manager of OrthoNeutrogena, where he managed the integration of Ortho Dermatological and Neutrogena Professional. He received his B.S. degree with a dual major in Finance and Accounting from Drexel University and an M.B.A. from Rider University.

Armando Anido has served as a director since July 2006 and Chief Executive Officer and President since July 2006. Since August 2003, Mr. Anido has served as a director of Adolor Corporation and currently serves as a member of its Compensation Committee and its Governance and Nominating Committee. Mr. Anido has over 25 years of biopharmaceutical commercialization experience. Most recently, he was the Executive Vice President, Sales and Marketing for MedImmune, Inc., a biotechnology company focused on developing and marketing products in the therapeutic areas of cancer, infectious disease and immune regulation, where he was responsible for worldwide commercialization of their portfolio. He also served on the Executive Committee and Product Development Committee. Prior to joining MedImmune in 1999, from 1995 to 1999, Mr. Anido was with GlaxoWellcome, Inc. where he served as Vice President, Central Nervous System Marketing after joining the company as Director, HIV Marketing. Mr. Anido was employed by Lederle Labs from 1989 to 1995 in various commercial roles, culminating as Vice President, Anti-infectives. Mr. Anido received his B.S. in Pharmacy and his M.B.A. in Marketing and Finance from West Virginia University.

Edwin A. Bescherer, Jr. has served as one of our directors since April 2004. Mr. Bescherer was also one of our directors from February 2000 to October 2003. From January 2004 to June 2005, Mr. Bescherer served as a director of Sybari Software, Inc. From 1978 to 1995, Mr. Bescherer served in a variety of management positions at Dun & Bradstreet Corporation, including as Executive Vice President, Finance and Chief Financial Officer from 1987 to 1995, as Senior Vice President, Finance and Chief Financial Officer from 1982 to 1987, and as Vice President, Controller from 1978 to 1982. Mr. Bescherer holds a B.S. from Purdue University.

Philippe O. Chambon, M.D., Ph.D., has served as one of our directors since October 2003. Since July 2005, Dr. Chambon has been a Managing Director of New Leaf Venture Partners, L.L.C., a venture capital firm (New Leaf Venture Partners is an affiliate of ours, see “Security Ownership of Certain Beneficial Owners and Management” beginning on page 42). Previously, Dr. Chambon was a General Partner of The Sprout Group, a private equity firm and venture capital affiliate of Credit Suisse First Boston, an investment bank. He also serves as a director of Deltagen, Inc., NxStage Medical, Inc. and PharSight Corporation and is a member of the Compensation Committee of each of the aforementioned companies. Dr. Chambon holds an M.D. and a Ph.D. from the University of Paris and an M.B.A. from Columbia University.

Winston J. Churchill has served as one of our directors since October 2000. Mr. Churchill has notified our Board that if he is elected to hold office until the 2008 Annual Meeting of Stockholders, he desires to serve for only such portion of his term as necessary for the Board to find an adequate replacement, at which time he would tender his resignation. The Nominating and Corporate Governance Committee of our Board currently is conducting a search for a replacement. Mr. Churchill has been the Managing General Partner of SCP Private Equity Partners II, L.P. since its inception in 1996 (SCP Private Equity Partners II, L.P. is an affiliate of ours, see “Security Ownership of Certain Beneficial Owners and Management” beginning on page 42). Mr. Churchill serves as Chairman of CIP Capital, L.P., a private equity fund which he founded in 1999. Prior to that, he was a Managing Partner of Bradford Associates, which managed private equity funds on behalf of Bessemer Securities Corporation and Bessemer Trust Company, a private wealth management and investment advisory firm. Mr. Churchill serves as a director of Amkor Technology, Inc., Griffin Land & Nurseries, Inc. and Innovative Solutions and Support, Inc., as well as a number of private companies. Mr. Churchill currently holds trusteeship and directorship positions with various nonprofit organizations and educational institutions including Fordham University, Georgetown University and Immaculata University. Mr. Churchill was awarded a B.S. in Physics, summa cum laude, from Fordham University followed by a M.A. in Economics from Oxford University where he studied as a Rhodes Scholar, and a J.D. degree from Yale Law School.

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Oliver S. Fetzer, Ph.D., has served as one of our directors since December 2005. Since July 2004, Dr. Fetzer has served as Senior Vice President, Corporate Development and Research & Development at Cubist Pharmaceuticals, Inc. From January 2003 to July 2004, he served as Cubist Pharmaceuticals, Inc.’s Senior Vice President, Corporate Development and Chief Business Officer and, from July 2002 until January 2003, he served as their Senior Vice President, Business Development. Before his time at Cubist Pharmaceuticals, Inc., starting in 1993, Dr. Fetzer held various positions of increasing responsibility at the Boston Consulting Group (BCG), a leading management consulting firm, including Consultant, Project Leader, Manager and Vice President and Director. Dr. Fetzer received a B.S. in Biochemistry from the College of Charleston (South Carolina), a Ph.D. in Pharmaceutical Sciences from the Medical University of South Carolina and an M.B.A. from Carnegie Mellon University.

Dennis J. Purcell has served as one of our directors since October 2001. Since December 2005, Mr. Purcell has been a Senior Managing Partner of Aisling Capital LLC, a private equity firm which advises the Perseus-Soros Biopharmaceutical Fund, LP (Perseus-Soros Biopharmaceutical Fund, LP is an affiliate of ours, see “Security Ownership of Certain Beneficial Owners and Management” beginning on page 42). From August 2000 to December 2005, Mr. Purcell served as the Senior Managing Director of Perseus-Soros Management, LLC. Aisling Capital LLC is a spin-out of Perseus-Soros Management, LLC. From August 1994 to January 2000, he served as Managing Director of Life Sciences Investment Banking at Chase H&Q, formerly Hambrecht & Quist LLC. Prior to that, Mr. Purcell was a Managing Director in the Healthcare Group at PaineWebber Incorporated, the investment banking, insurance and registered broker-dealer division of PaineWebber Group Inc. He also currently serves as a director of Valentis, Inc. Mr. Purcell holds a B.S. in Economics and Accounting from the University of Delaware and an M.B.A. from Harvard University.

THE BOARD BELIEVES THAT THE ELECTION OF THE NOMINEES FOR DIRECTOR IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, IT RECOMMENDS A VOTE “FOR ALL NOMINEES” FOR DIRECTOR.

Proposal 2: Approval of the amended and restated Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan

On April 20, 2007, the Board unanimously approved an amendment and restatement of the Auxilium Pharmaceuticals, Inc. 2004 Equity Compensation Plan (the “Plan”), subject to approval by the stockholders of the Company, to (i) increase the number of shares of Company common stock authorized for issuance under the Plan from 6,000,000 to 8,000,000 shares, (ii) limit the number of shares that may be issued under the Plan pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights) granted after June 13, 2007 to 750,000, and (iii) make other appropriate changes, including extending the term of the Plan to June 13, 2017 and updating the share counting provisions. The Board has directed that the proposal to amend and restate the Plan be submitted to the Company’s stockholders for their approval at the Meeting. Stockholder approval of the amendment and restatement of the Plan is being sought (i) so that compensation attributable to grants under the Plan may continue to qualify for an exemption from the $1,000,000 deduction limit under section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) in order for incentive stock options to meet the requirements of the Code, and (iii) in order to meet the Nasdaq Global Market listing requirements.

The Board believes that the number of shares of Company common stock currently available for issuance or transfer under the Plan is not sufficient in view of our compensation structure and strategy and succession planning process. The Board has concluded that our ability to attract, retain and motivate top quality management and employees is material to our success and would be enhanced by our continued ability to grant equity compensation under the Plan. In addition, the Board believes that our interests and the interests of our stockholders will be advanced if we can continue to offer our employees, notably at the senior management level, advisors, consultants, and non-employee directors the opportunity to acquire or increase their proprietary interests in us.

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The affirmative vote of a majority of the votes cast at the Meeting is required to adopt and approve the amendment and restatement of the Plan, provided a quorum is present in person or by proxy. Votes may be cast (i) FOR, (ii) AGAINST or (ii) may ABSTAIN. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

For information with respect to grants to certain executive officers in Fiscal 2006 under the Plan, see the table captioned “Grants of Plan-Based Awards” on page 36 and for information with respect to grants to the Company’s non-employee directors, see page 40.

The material terms of the proposed amendment and restatement of the Plan are summarized below. A copy of the Plan is attached to this Proxy Statement as Exhibit A. This summary of the Plan is not intended to be a complete description of the Plan. This summary is qualified in its entirety by the actual text of the Plan to which reference is made.

THE BOARD BELIEVES THAT THE AMENDMENT AND RESTATEMENT OF THE PLAN IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, IT RECOMMENDS A VOTE “FOR” THE AMENDMENT AND RESTATEMENT.

Purposes and Effects. The Plan was adopted by the Board and approved by the Company’s stockholders in June 2004. Amendment 2006-1 to the Plan was approved by the Company’s stockholders in June 2006, and the Plan was further amended and restated by the Compensation Committee of the Board on October 3, 2006. The purpose of the Plan is to attract and retain employees, non-employee directors, and consultants. The Plan provides for the issuance of incentive stock options, nonqualified stock options, stock awards, stock units, dividend equivalents and other equity-based awards. The Plan provides an incentive to participants to contribute to our economic success by aligning the economic interests of participants with those of our stockholders.

Administration of the Plan. The Plan is administered by the Compensation Committee of the Board. The Compensation Committee determines all of the terms and conditions applicable to grants under the Plan. The Compensation Committee determines who receives grants under the Plan and the number of shares of our Company common stock that will be subject to grants. Grants to our non-employee directors may only be made by the Board.

Share Reserve. The Plan currently has 6,000,000 shares of the Company common stock authorized for issuance, of which 1,083,990 shares of Company common stock have been issued and 4,043,397 shares of Company common stock reserved for issuance with respect to outstanding awards under the Plan, both as of March 31, 2007. Under the amendment and restatement of the Plan, up to 8,000,000 shares of Company common stock will be authorized for issuance, subject to adjustment as described below. Within the 8,000,000 share limit, the maximum number of shares of Company common stock that may be issued under the Plan pursuant to stock awards, stock units and other equity-based awards (other than stock appreciation rights) granted after June 13, 2007 during the term of the Plan is 750,000 shares, subject to adjustment as described below.

The Plan contains a limit of 500,000 shares on the maximum number of shares of Company common stock that may be granted with respect to all grants other than dividend equivalents to an individual in any calendar year, subject to adjustment as described below. A grantee may not accrue dividend equivalents during any calendar year in excess of $100,000.

If any options terminate, expire or are canceled, forfeited, exchanged or surrendered without having been exercised or if and to the extent any stock awards, stock units or other equity-based awards are forfeited, the shares subject to such grants will again be available for purposes of the Plan. Under the amended and restated Plan, if any shares of Company common stock are surrendered in payment of the exercise price of an option or

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withheld or surrendered for payment of taxes, those shares will not be available again for grants under the Plan. If stock appreciation rights are granted as other equity-based awards, the full number of shares subject to the stock appreciation rights will be considered issued under the Plan, without regard to the number of shares issued upon exercise of the stock appreciation rights and without regard to any cash settlement of the stock appreciation rights. If any grants are paid in cash, and not in shares of Company common stock, any shares of Company common stock subject to such grants will not count against the foregoing share limits.

Adjustments. In connection with stock splits, reverse stock splits, stock dividends, recapitalizations and other events affecting Company common stock without the Company’s receipt of consideration, the maximum number of shares of Company common stock reserved for issuance as grants, the maximum number of shares of Company common stock that any individual participating in the Plan may be granted in any year, the number and kind of shares covered by outstanding grants, the kind of shares that may be issued or transferred under the Plan, and the price per share or market value of any outstanding grants will be equitably adjusted by the Compensation Committee, as the Compensation Committee deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Company common stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under grants; provided, however, that any fractional shares resulting from such adjustments shall be eliminated. The Compensation Committee will have discretion to make the foregoing equitable adjustments in any circumstances in which an adjustment is not mandated by the terms of the Plan or applicable law, including in the event of a change of control. Any adjustments to outstanding grants will be consistent with section 409A or 422 of the Code, to the extent applicable. Any adjustments determined by the Compensation Committee will be final, binding and conclusive.

Eligibility. All of our employees and employees of our subsidiaries are eligible to receive grants under the Plan. In addition, our non-employee directors and consultants and advisors who perform services for us and our subsidiaries may receive grants under the Plan.

Vesting. The Compensation Committee determines the vesting of awards granted under the Plan.

Options. Under the Plan, the Compensation Committee may grant options to purchase shares of Company common stock in amounts and at exercise prices as the Compensation Committee determines. Under the Plan, the Compensation Committee may grant options intended to qualify as incentive stock options under section 422 of the Code, or nonqualified stock options, which are not intended to so qualify. Incentive stock options may only be granted to employees. The exercise price of an incentive stock option cannot be less than the fair market value of a share of Company common stock on the date the option is granted. If an incentive stock option is granted to a 10% stockholder, the exercise price cannot be less than 110% of the fair market value of a share of Company common stock on the date the option is granted. The exercise price of a nonqualified stock option may be equal to or greater than the fair market value of a share of Company common stock on the date the option is granted, as determined by the Compensation Committee.

The exercise price for any option is generally payable:

The term of an option cannot exceed ten years from the date of grant. If an incentive stock option is granted to a 10% stockholder, the term cannot exceed five years from the date of grant.

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Except as provided in the grant instrument or as otherwise determined by the Compensation Committee, an option may only be exercised while a grantee is employed by or providing service to us or our subsidiaries or during an applicable period after termination of employment or service.

Stock Awards. Under the Plan, the Compensation Committee may grant stock awards. A stock award is an award of Company common stock that may be issued for consideration or no consideration and may be subject to restrictions as the Compensation Committee determines. The restrictions, if any, may lapse over a specified period of employment or based on the satisfaction of pre-established criteria, in installments or otherwise, as the Compensation Committee may determine. Except to the extent restricted under the grant instrument relating to the stock award, a grantee awarded a stock award will have all of the rights of a stockholder as to those shares, including the right to vote and the right to receive dividends or distributions on the shares. All unvested stock awards are forfeited if the grantee’s employment or service is terminated for any reason, unless the Compensation Committee determines otherwise in the grant instrument.

Stock Units. Under the Plan, the Compensation Committee may grant stock units. Stock units are phantom units that represent shares of Company common stock on a one for one basis. Stock units become payable on terms and conditions determined by the Compensation Committee and will be payable in cash or shares of Company common stock as determined by the Compensation Committee. All unvested stock units are forfeited if the grantee’s employment or service terminates for any reason, unless the Compensation Committee determines otherwise in the grant instrument.

Other Equity-Based Awards. Under the Plan, the Compensation Committee may grant other types of awards that are based on, measured by or payable in shares of Company common stock, including stock appreciation rights. The Compensation Committee will determine the terms and conditions of such awards. Other equity-based awards may be payable in cash, shares of Company common stock or a combination of the two.

Dividend Equivalents. Under the Plan, the Compensation Committee may grant dividend equivalents in connection with any grant made under the Plan. Dividend equivalents entitle the grantee to receive amounts equal to ordinary dividends that are paid on the shares underlying a grant while the grant is outstanding. The Compensation Committee will determine whether dividend equivalents will be paid currently or credited to a bookkeeping account as a dollar amount or in the form of stock units. Dividend equivalents may be paid in cash, in shares of Company common stock or in a combination of the two. The Compensation Committee will determine whether they will be conditioned upon the exercise, vesting or payment of the grant to which they relate and the other terms and conditions of the grant.

Qualified Performance-Based Compensation. The Plan permits the Compensation Committee to impose performance goals that must be met with respect to grants of stock awards, stock units, dividend equivalents and other equity-based awards that are intended to meet the exception for qualified performance-based compensation under section 162(m) of the Code. Prior to or soon after the beginning of the performance period, the Compensation Committee will establish the performance goals that must be met, the applicable performance periods, the amounts to be paid if the performance goals are met and any other conditions.

The performance goals, to the extent designed to meet the requirements of section 162(m) of the Code, will be based on one or more of the following criteria: total stockholder return; total stockholder return as compared to total stockholder return of comparable companies or a publicly available index; net income; pretax earnings; earnings before interest expense and taxes; earnings before interest expense, taxes, depreciation and amortization; earnings per share; return on equity; return on assets; revenues; asset growth; operating ratios; access to and availability of funding; asset quality; regulatory filings; regulatory approvals; or other operational, regulatory or departmental objectives.

Deferrals. The Compensation Committee may permit or require grantees to defer receipt of the payment of cash or the delivery of shares of Company common stock that would otherwise be due to the grantee in connection with a grant under the Plan. The Compensation Committee will establish the rules and procedures applicable to any such deferrals.

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Change of Control. If we experience a change of control and we are not the surviving corporation, unless the Compensation Committee determines otherwise, all outstanding options will be assumed or replaced with comparable options by the surviving corporation, and other outstanding grants will be converted into similar grants of the surviving corporation.

The Compensation Committee may also provide that:

In general terms, a change of control under the Plan occurs if:

Amendment; Termination. The Board may amend or terminate the Plan at any time; except that our stockholders must approve any amendment if such approval is required in order to comply with the Code, applicable laws, or applicable stock exchange requirements. Unless terminated sooner by the Board or extended with stockholder approval, the Plan will terminate on June 13, 2017.

Stockholder Approval for Qualified Performance-Based Compensation. If stock awards, stock units, other equity-based awards or dividend equivalents are granted as qualified performance-based compensation under section 162(m) of the Code as described under “Qualified Performance-Based Compensation” above, the Plan must be re-approved by the Company’s stockholders no later than the first stockholders meeting that occurs in the fifth year following the year in which the stockholders previously approved the Plan.

Grants Under the Plan. Grants under the Plan are discretionary, so it is currently not possible to predict the number of shares of our common stock that will be granted or who will receive grants under the Plan after the Meeting. As of March 31, 2007, 1,083,990 shares of Company common stock have been issued and 4,043,397 shares are subject to outstanding awards under the Plan.

The last sales price of a share of Company common stock on March 30, 2007 was $14.68 per share.

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Federal Income Tax Consequences of the Plan

The federal income tax consequences of grants under the Plan will depend on the type of grant. The following description provides only a general description of the application of federal income tax laws to grants under the Plan. This discussion is intended for the information of stockholders considering how to vote at the Meeting and not as tax guidance to grantees, as the consequences may vary with the types of grants made, the identity of the grantees and the method of payment or settlement. The summary does not address the effects of other federal taxes (including possible “golden parachute” excise taxes) or taxes imposed under state, local, or foreign tax laws.

From the grantees’ standpoint, as a general rule, ordinary income will be recognized at the time of delivery of shares of our common stock or payment of cash under the Plan. Future appreciation on shares of our common stock held beyond the ordinary income recognition event will be taxable as capital gain when the shares of our common stock are sold. The tax rate applicable to capital gain will depend upon how long the grantee holds the shares. We, as a general rule, will be entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the grantee, and we will not be entitled to any tax deduction with respect to capital gain income recognized by the grantee.

Exceptions to these general rules arise under the following circumstances:

(i) If shares of Company common stock, when delivered, are subject to a substantial risk of forfeiture by reason of any employment or performance-related condition, ordinary income taxation and our tax deduction will be delayed until the risk of forfeiture lapses, unless the grantee makes a special election to accelerate taxation under section 83(b) of the Code.

(ii) If an employee exercises a stock option that qualifies as an incentive stock option, no ordinary income will be recognized, and we will not be entitled to any tax deduction, if shares of Company common stock acquired upon exercise of the stock option are held until the later of (A) one year from the date of exercise and (B) two years from the date of grant. However, if the employee disposes of the shares acquired upon exercise of an incentive stock option before satisfying both holding period requirements, the employee will recognize ordinary income to the extent of the difference between the fair market value of the shares on the date of exercise (or the amount realized on the disposition, if less) and the exercise price, and we will be entitled to a tax deduction in that amount. The gain, if any, in excess of the amount recognized as ordinary income will be long-term or short-term capital gain, depending upon the length of time the employee held the shares before the disposition.

(iii) A grant may be subject to a 20% tax, in addition to ordinary income tax, at the time the grant becomes vested, plus interest, if the grant constitutes deferred compensation under section 409A of the Code and the requirements of section 409A of the Code are not satisfied.

Section 162(m) of the Code generally disallows a publicly held corporation’s tax deduction for compensation paid to its chief executive officer or any of its four other most highly compensated officers in excess of $1 million in any year. Qualified performance-based compensation is excluded from the $1 million deductibility limit, and therefore remains fully deductible by the corporation that pays it. We intend that options and any stock appreciation rights granted under the Plan will be qualified performance-based compensation. Stock units, stock awards, dividend equivalents, and other equity-based awards granted under the Plan may be designated as qualified performance-based compensation if the Compensation Committee conditions such grants on the achievement of specific performance goals in accordance with the requirements of section 162(m) of the Code.

We have the right to require that grantees pay to us an amount necessary for us to satisfy our federal, state or local tax withholding obligations with respect to grants. We may withhold from other amounts payable to a grantee an amount necessary to satisfy these obligations. The Compensation Committee may permit a grantee to

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satisfy our withholding obligation with respect to grants paid in shares of our common stock by having shares withheld, at the time the grants become taxable, provided that the number of shares withheld does not exceed the individual’s minimum applicable withholding tax rate for federal, state and local tax liabilities.

Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm

Subject to ratification by our stockholders, the Audit Committee of the Board has selected PricewaterhouseCoopers LLP as our independent registered public accounting firm for Fiscal 2007. PricewaterhouseCoopers LLP has served as our independent registered public accounting firm since October 2005. PricewaterhouseCoopers LLP has informed us that they are not aware of any additional independence-related relationships between their firm and us other than the professional services discussed in “Independent Registered Public Accounting Firm Fees and Other Matters” below. From June 2002 until our engagement of PricewaterhouseCoopers LLP in October 2005, KPMG LLP served as our independent registered public accounting firm.

The affirmative vote of a majority of the votes cast at the Meeting is required to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for Fiscal 2007. Votes may be cast (i) FOR, (ii) AGAINST or (iii) may ABSTAIN. Abstentions will count in the tabulations of votes cast on this proposal and will have the effect of a vote against for purposes of determining whether the proposal is approved. Broker non-votes are not counted as votes cast or shares voting on this proposal and will have no effect on the voting on this proposal.

Although stockholder ratification of the selection of PricewaterhouseCoopers LLP is not required by law, the Board believes that it is desirable to give our stockholders the opportunity to ratify this selection. If this proposal is not approved at the Meeting, the selection of such independent registered public accounting firm will be reconsidered by the Audit Committee of the Board. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm during the year if the Audit Committee determines such a change would be in the best interests of Auxilium and its stockholders.

One or more representatives of PricewaterhouseCoopers LLP is expected to attend the Meeting and will have an opportunity to make a statement and respond to appropriate questions from our stockholders.

THE BOARD BELIEVES THAT THE AUDIT COMMITTEE’S SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2007 IS IN THE BEST INTERESTS OF AUXILIUM AND ITS STOCKHOLDERS AND THEREFORE, IT RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP.

Independent Registered Public Accounting Firm Fees and Other Matters

The following table sets forth the aggregate fees paid to PricewaterhouseCoopers LLP, our current registered public accounting firm, and to KPMG LLP, our former registered public accounting firm, for professional services rendered with respect to Fiscal 2006 and Fiscal 2005.

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Pre-Approval Policies and Procedures

The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.

From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.

The Audit Committee has delegated to the Chairman of the Audit Committee the authority to approve up to $15,000 of tax services to be provided to us by our independent registered public accounting firm. Any approval of tax services by the Chairman pursuant to this delegated authority must be reported to the full Audit Committee at its next scheduled meeting.

The prior approval of the Audit Committee was obtained for all services provided by KPMG LLP and PricewaterhouseCoopers LLP since the establishment of the Audit Committee in June 2004.

Change in Accountants

On October 7, 2005, we dismissed KPMG LLP as our independent registered public accounting firm. The dismissal was approved by the Audit and Compliance Committee of the Board. The audit reports of KPMG LLP on the consolidated financial statements of the Company and subsidiaries as of and for the years ended December 31, 2004 and 2003 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

In connection with the audits of the fiscal years ended December 31, 2004 and 2003, and the subsequent interim period through October 7, 2005, there were: (1) no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which disagreement(s), if not resolved to the satisfaction of KPMG LLP, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report, or (2) no “reportable events” as such term is defined in Item 304(a)(1)(v) of Regulation S-K promulgated by the Securities and Exchange Commission (“Regulation S-K”), except that, as we previously disclosed in Item 9A of our Annual Reports on Form 10-K for the fiscal years ended December 31, 2004 and December 31, 2005, and in Item 4 of our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2005 and June 30, 2005, KPMG LLP determined in connection with its audit of our consolidated financial statements as of December 31, 2004 and for the period

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then ended that material weaknesses in our internal control over financial reporting existed as a result of certain employees non-compliance with approval controls with respect to certain agreements and transactions and failure to disclose certain related party transactions.

Management believes that by taking the actions described in our Annual Reports on Form 10-K for the fiscal years ended December 31, 2004 and December 31, 2005 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2005 and June 30, 2005, we remedied those material weaknesses in our internal control over financial reporting that were the result of the non-compliance by certain specified employees and concluded that our disclosure controls and procedures were effective as of June 30, 2005.

On October 7, 2005, we engaged PricewaterhouseCoopers LLP, effective October 7, 2005, to serve as our independent public registered accounting firm for all interim periods in 2005 subsequent to June 30, 2005 and for the year ended December 31, 2005. The engagement of PricewaterhouseCoopers LLP was approved by the Audit and Compliance Committee of the Board. The Audit and Compliance Committee discussed the subject matter of the material weaknesses with KPMG LLP, and we authorized KPMG LLP to respond fully to the inquiries of PricewaterhouseCoopers LLP concerning the material weaknesses.

During the fiscal years ended December 31, 2004 and 2003 and through the subsequent interim period through October 7, 2005, neither we nor anyone on our behalf consulted with PricewaterhouseCoopers LLP with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements or (ii) any matter that was the subject of a “disagreement”, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a “reportable event”, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

Other Matters

As of the date of this Proxy Statement, the Board does not know of any other matters that may come before the Meeting, other than as set forth in the Notice of Annual Meeting of Stockholders and this Proxy Statement. If any other matters properly come before the Meeting, it is intended that holders of the proxies will vote thereon in their discretion.

Deadline for Submission of Stockholder Proposals for the 2008 Annual Meeting of Stockholders

Proposals of stockholders intended to be presented at the 2008 Annual Meeting of Stockholders pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, must be received by us no later than the close of business on December 31, 2007 in order that they may be included in the proxy statement and form of proxy relating to that meeting. Proposals should be addressed to Jennifer Evans Stacey, Esq., Secretary of Auxilium, at the address set forth below.

In addition, our by-laws require that we be given advance notice of stockholder nominations for election to the Board and of other business that stockholders wish to present for action at an Annual Meeting of Stockholders (other than matters included in our proxy statement in accordance with Rule 14a-8 as described above). Such nominations and proposals, other than those made by or on behalf of the Board, must be made by notice in writing delivered to the Secretary at the address set forth below, and received no earlier than February 14, 2008 and no later than March 15, 2008, assuming that the 2008 Annual Meeting of Stockholders is to be held between May 24, 2008 and August 12, 2008, as we currently anticipate. In the event that the 2008 Annual Meeting of Stockholders is not held between May 24, 2008 and August 12, 2008, notice of stockholder nominees or proposals must be received no earlier than 120 days before the date of the 2008 Annual Meeting of Stockholders and no later than 90 days before the date of the 2008 Annual Meeting of Stockholders or the 10th day following our first public announcement of the date of such meeting, whichever is later. Our bylaws also require that such notice contain certain additional information. Copies of our bylaws can be obtained without charge from the Secretary.

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CORPORATE GOVERNANCE

Code of Conduct

In June 2004, the Board adopted a Code of Conduct applicable to all our directors, officers and employees. The Board amended the Code of Conduct effective January 30, 2006. With respect to any further amendments or waivers of the Code of Conduct (to the extent applicable to the Company’s chief executive officer, principal accounting officer or controller, or persons performing similar functions) the Company intends to either post such amendments or waivers on its Web site, www.auxilium.com, or disclose such amendments or waivers pursuant to a Current Report on Form 8-K. Our Code of Conduct contains written standards designed to deter wrongdoing and to promote:

Our Code of Conduct is posted on our Web site at www.auxilium.com under the heading “Investor Relations—Corporate Governance.”

Committees and Meetings of our Board of Directors

Board of Directors. The Board held 23 meetings during Fiscal 2006. Throughout this period, each member of the Board attended or participated in at least 75% of the aggregate of the total number of duly constituted meetings of the Board held during the period for which such person had been a director, and the total number of meetings held by all committees of the Board on which each such director served during the periods the director served. The Board has three standing committees: the Compensation Committee, the Audit Committee and the Nominating and Corporate Governance Committee, each of which operates under a charter that has been approved by the Board. Each of these charters is posted on our Web site at www.auxilium.com under the heading “Investor Relations—Corporate Governance.” Our Corporate Governance Guidelines provide that directors are expected to attend our Annual Meeting of Stockholders. All of our directors attended the 2006 Annual Meeting.

Compensation Committee. Our Compensation Committee was established in June 2004 pursuant to the Compensation Committee Charter posted on our Web site at www.auxilium.com under the heading “Investor Relations—Corporate Governance.” Specific responsibilities of our Compensation Committee include:

Our Compensation Committee is composed solely of “independent directors”, which directors are deemed to be independent under applicable Nasdaq listing standards promulgated by the NASD. The members of our

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Compensation Committee are Mr. Churchill (Chairman), Dr. Chambon, Mr. Classon and Dr. Fetzer. Our Compensation Committee held eight meetings during Fiscal 2006. On May 1, Dr. Fetzer will assume the chairmanship of the Compensation Committee.

Audit and Compliance Committee. Our Audit Committee was established in June 2004 pursuant to the Audit and Compliance Committee Charter. The Audit and Compliance Committee Charter is posted on our Web site at www.auxilium.com under the heading “Investor Relations—Corporate Governance.”

Our Audit Committee assists the Board in its oversight and review of:

The Audit Committee has the sole and direct responsibility for appointing, evaluating and retaining our independent auditors, overseeing their work and monitoring the rotation of partners on our engagement team, as required by law. All audit services and all non-audit services to be provided to us by our independent auditors must be approved in advance by the Audit Committee. The Audit Committee also discusses with management and our independent auditors the results of any annual audit and review of our quarterly financial statements.

The members of the Audit Committee are Mr. Bescherer (Chairman), Mr. Altomari, and Mr. Classon, each of whom is an “independent director” under applicable Nasdaq listing standards promulgated by the NASD. Mr. Bescherer is our “audit committee financial expert” as required by Section 407 of the Sarbanes-Oxley Act of 2002. We believe that the composition of our Audit Committee meets the requirements for independence under the current requirements of the Sarbanes-Oxley Act of 2002, as well as Nasdaq and SEC rules and regulations. We believe that the functioning of the Audit Committee complies with the applicable requirements of the Sarbanes-Oxley Act of 2002, as well as Nasdaq and SEC rules and regulations. The Audit Committee held 15 meetings during Fiscal 2006.

Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee was established in June 2004, pursuant to the Nominating and Corporate Governance Committee Charter posted on our Web site at www.auxilium.com under the heading “Investor Relations—Corporate Governance.”

Specific responsibilities of our Nominating and Corporate Governance Committee include:

Our Nominating and Corporate Governance Committee is composed solely of “independent directors”, which directors are deemed to be independent under applicable Nasdaq listing standards promulgated by the NASD. The members of our Nominating and Corporate Governance Committee are Dr. Chambon (Chairman), Mr. Bescherer and Mr. Purcell. Our Nominating and Corporate Governance Committee held four meetings during Fiscal 2006.

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Director Candidates

The process followed by our Nominating and Corporate Governance Committee to identify and evaluate director candidates includes requests to board members and others for recommendations, retention for a fee of search firms, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and the Board.

In considering whether to recommend any particular candidate for inclusion in the Board’s slate of recommended director nominees, our Nominating and Corporate Governance Committee will apply the criteria contained in the Nominating and Corporate Governance Committee’s charter. These criteria include the candidate’s understanding of and experience in the pharmaceutical industry, understanding of and experience in accounting oversight and governance, finance and marketing and leadership experience with public companies or other significant organizations. We believe that the backgrounds and qualifications of our directors as a whole should collectively possess a broad range of skills, expertise, industry and other knowledge, and business and other experience useful to the effective oversight of our business.

Stockholders may recommend individuals to our Nominating and Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate information about the candidate that would be required to be included in a proxy statement under the rules of the SEC, information about the relationship between the candidate and the recommending stockholder, the consent of the candidate to serve as a director and proof of the number of shares of our common stock that the recommending stockholder owns and the length of time the shares have been owned to the Nominating and Corporate Governance Committee via U.S. Mail (including courier or expedited delivery service) to the address set forth below. Assuming that appropriate material has been provided on a timely basis, the Nominating and Corporate Governance Committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.

Stockholders also have the right to nominate director candidates themselves, without any prior review or recommendation by the Nominating and Corporate Governance Committee or the Board, by following the procedures set forth herein under the heading “Deadline for Submission of Stockholder Proposals for the 2007 Annual Meeting of Stockholders” beginning on page 16.

Communicating with our Directors

Our Board of Directors will give appropriate attention to written communications that are submitted by stockholders and will respond if and as appropriate. The Chairman of the Board is primarily responsible for monitoring communications from our stockholders and for providing copies or summaries of such correspondence to the other directors as he considers appropriate.

Stockholders who wish to send communications on any topic to the Board as a whole should send such communication to the attention of the Chairman of the Board of Directors via U.S. Mail (including courier or expedited delivery service) to the address set forth below or by facsimile at 484-321-5996.

Stockholders who wish to send communications on any topic to an individual director in his or her capacity as a member of the Board, may send such communications to the attention of the individual director via U.S. Mail (including courier or expedited delivery service) to the address set forth below or by facsimile at 484-321-5996.

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Report of the Audit and Compliance Committee

The Audit and Compliance Committee (the “Audit Committee”) of the Board of Directors of Auxilium Pharmaceuticals, Inc., a Delaware corporation (the “Company”), is composed of three independent directors and operates under a written charter adopted by the Board of Directors. The members of the Audit Committee are Edwin A. Bescherer, Jr. (Chairman), Al Altomari and Rolf A. Classon.

Management is responsible for the Company’s internal controls and the financial reporting process. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

In this context, the Audit Committee has met and held discussions with management and the independent registered public accounting firm regarding the Company’s audited financial statements for the year ended December 31, 2006. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee discussed with management the critical accounting policies applied by management in the preparation of the Company’s financial statements, as well as management’s assessment of the effectiveness of the Company’s internal control over financial accounting. The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Company’s independent registered public accounting firm also provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence.

The Audit Committee met with the internal auditor and the independent registered public accounting firm, with and without management present, to discuss their respective evaluations of the Company’s internal controls, the overall quality of the Company’s financial reporting and the scope and plans for their respective audits.

Based upon the Audit Committee’s discussions with management and the independent registered public accounting firm and the Audit Committee’s review of the representations of management and the report of the independent registered public accounting firm to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC.

Respectfully submitted,

By the Audit and Compliance Committee of the Board of

Directors of Auxilium Pharmaceuticals, Inc.

Edwin A. Bescherer, Jr., Chairman

Al Altomari

Rolf A. Classon

April 30, 2007

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EXECUTIVE COMPENSATION

Executive Officers

Our executive officers are elected annually by the Board and serve until their successors are duly elected and qualified. The following table identifies our current executive officers:

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COMPENSATION DISCUSSION AND ANALYSIS

In this Compensation Discussion and Analysis, we describe the material elements of compensation for our executive officers identified in the Summary Compensation Table that immediately follows this discussion, whom we refer to in this discussion and analysis as our named executive officers, and we specifically provide detail for the elements of compensation that impact our financial statements for the year ended December 31, 2006, also referred to as fiscal 2006.

Compensation Philosophy

Our compensation philosophy is designed to meet our objective of providing our named executive officers with a compensation package that is competitive with those of executive officers providing similar services for companies of similar size, maturity and market capitalization. We believe that providing a competitive compensation package to each of our named executive officers is critical to our ability to attract, retain and motivate our team. In order to achieve our compensation objectives, our compensation package for our executives focuses on three principal elements:

We provide additional retirement and other benefits for executives similar to those provided by other corporations in our industry of similar, size, maturity and market capitalization.

Our short-term incentive awards, or bonuses, are cash payments based upon:

We believe that our short-term incentive program motivates our executives to meet and exceed the individual objectives defined by our Chief Executive Officer, or CEO, and our annual corporate goals as established by our Board.

Our long-term incentive awards are equity awards in the form of grants of stock options and restricted stock. Our long-term incentive awards are based upon individual and functional objectives for the named executive officer. We believe that providing our executive officers with equity awards aligns their interest with those of our stockholders.

Administration of Compensation Program and Determination of Competitive Compensation

The Compensation Committee of our Board administers our compensation program. The specific duties and responsibilities of our Compensation Committee are described in this proxy statement under the heading “Committees and Meetings of our Board of Directors.” The Compensation Committee annually retains an independent consulting firm. This consulting firm reports to the Compensation Committee directly and provides the Compensation Committee with an independent assessment of the compensation of executive officers at our peer companies in order to assist the Compensation Committee in its determination of whether the overall compensation packages for each of our named executive officers is competitive. This assessment consists of an analysis of each component of compensation as well as total cash compensation and total overall compensation, which includes a valuation of long-term incentive awards. The Compensation Committee annually approves the list of comparator companies used in the executive compensation analysis. The peer group data provided by the independent consultant provides useful comparisons. However, we use the data as a guide, not as a rule when establishing the compensation packages we provide to our executives.

In 2006, the Compensation Committee retained The Hay Group as its independent compensation consultant. With respect to the report prepared by The Hay Group for 2006, the Compensation Committee focused on

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pharmaceutical and biotechnology organizations with rapidly growing revenues and market capitalization in a range of $100 million to $800 million and with development stage and commercialization functionality. At the time of the report, our market capitalization of $167 million placed us in the first quartile of the market capitalization of the 18-company peer group, having a median of $340 million. Our revenues of $27 million for 2005 placed us just below the median of the peer group.

The Compensation Committee retained Radford Consulting + Surveys, a division of AON (“AON”), to provide the report in 2007. With respect to the report provided by AON in early 2007, the Compensation Committee focused on 14 specific public biotechnology/pharmaceutical peer companies with similar products/business focus and employee size to our company. Specifically, AON identified peer companies with employee size and market value between ~0.5x and ~2.0x of our company and targeted companies with revenues between ~$50M and ~$150M at the request of the Compensation Committee. The Compensation Committee also included a broader group of biotechnology/pharmaceutical companies within a specific employee size (150-499 employees).

In addition to peer group data, the Compensation Committee also reviews “tally sheets” for each named executive officer in order to analyze the total opportunity for wealth accumulation that is available to each of our named executive officers. The tally sheets provide the Compensation Committee with the following information for each of our named executive officers to the extent applicable to each named executive officer:

Our Human Resources Department works with the executive compensation consultant to match company positions against survey positions and to compile the annual compensation data for each executive officer. Our Human Resources Department does not direct or oversee the activities of the consultant retained by the Compensation Committee.

Timing and Role of Executive Officers in Compensation Decisions

Early in the calendar year, our Board approves our financial and operational objectives for that current year, and the CEO sets functional and individual objectives for named executive officers for that current year. Generally, the Compensation Committee meets each February to determine the overall compensation package for each of our named executive officers. In doing so, the Compensation Committee reviews the degree to which we

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achieved the goals set by our Board for the prior year and the degree to which each of the named executive officers achieved their individual goals and their respective contributions to our financial, operational and functional and individual objectives for the prior year. As part of this review, our CEO provides a review of each named executive officer’s performance as well as recommendations to the Compensation Committee to assist it in determining the various components of compensation. The CEO does not make recommendations with respect to his/her own compensation. While the Compensation Committee utilizes this information, and values the CEO’s observations with regard to other executive officers, the ultimate decisions regarding executive compensation are made by the Compensation Committee in accordance with its Charter.

The Compensation Committee may review salaries and grant options at other times as a result of new appointments or promotions during the year.

Elements of Compensation

General

The Compensation Committee does not apply fixed weighting or formulas when it considers the criteria applied to each component of an individual’s overall compensation. Rather, the Compensation Committee exercises its judgment in determining the appropriate amount of each component of an individual’s overall compensation. In addition, in determining the overall levels of salary, short-term incentive awards and long-term incentive awards for named executive officers, the Compensation Committee also considers talent management (including the recruitment and development of a diverse and superior talent pool), and morale of and productivity of management. Unless we disclose otherwise in the future, the Compensation Committee intends to employ the methodologies described below when considering future grants of Short-Term and Long-Term Incentive Awards.

Our corporate headquarters is located just outside of Philadelphia. The greater Philadelphia, northern New Jersey and metropolitan New York areas are generally considered to be among the regions in the United States with the most pharmaceutical industry jobs. We, therefore, believe that we are recruiting and endeavoring to retain talent in one of our industry’s more competitive geographic areas in the country. It was in this environment that we sought a new CEO during 2006. We believe that the skill-sets and experience possessed by the individual that we hired to fill this position will be critical to our future success. As a result, in 2006 the Compensation Committee placed a heavy emphasis on the compensation packages provided by our comparator companies and those companies where potential candidates were employed when determining the components and levels of our compensation packages for our named executive officers.

Salary

The salary level for each named executive officer is based principally on the executive’s responsibilities. We generally seek to position salaries for our named executive officers so that the salary corresponds to the 50^th percentile of salaries for comparable executives included in the executive compensation database material referenced by our executive compensation consultant. However, in setting base salaries, the Compensation Committee also gives consideration to:

These considerations may cause the salary of an individual to vary from the 50^th percentile. While we concur with the compensation consultant’s view that compensation is competitive if it is within a range of 15 percent

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above or 15 percent below compensation amounts at the 50th percentile for comparable executives, we may establish compensation outside this range due to differences in experience, as well as variations in responsibilities, performance and ability.

Based on the data provided by our executive compensation consultant and taking into consideration the responsibilities of each named executive officer and his/her performance against the pre-determined objectives and overall performance in 2005, we adjusted the named executive officers’ salaries paid in 2006 by the percentages indicated in the chart below.

In 2006, Ms. Henwood, our former Chief Executive Officer and Interim President was awarded a base salary increase from $340,000 to $360,400 based upon the Company’s financial and operational accomplishments in 2005 and her contribution to those accomplishment.

In June 2006, Mr. Kessig was promoted from Vice President of Sales to Senior Vice President of Sales. Mr. Kessig’s promotion was due to his strong performance and contribution to the overall growth of Testim sales in conjunction with our continued focus on growth of Testim revenue. As a result, the Compensation Committee increased Mr. Kessig’s salary from $236,500 to $248,325 to reflect his increased responsibility with respect to our revenue growth. The Compensation Committee had increased Mr. Kessig’s salary in February 2006 from $215,000 to $236,500 based on his performance in 2005.

In June 2006, the Compensation Committee increased Ms. Stacey’s salary from $262,500 to $275,625 to reflect the fact that oversight of Human Resources had been added to her responsibilities, in addition to her duties as an executive vice president and serving as our general counsel and corporate secretary. The Compensation Committee believed that Ms. Stacey’s responsibilities for oversight of Human Resources had resulted in an increase in her overall time commitment beyond that for which she was being compensated and was necessary in order to maintain internal pay equity. The Compensation Committee had increased Ms. Stacey’s salary in February 2006 from $250,000 to $262,500 based on her performance in 2005.

The 2006 salary adjustment for Mr. Fickenscher to $282,700 was in recognition of his strong performance and contributions to the Company’s financial performance in 2005.

The 2006 salary adjustment for Dr. Mattila to $318,000 was in recognition of his strong performance with respect to the development of our product candidates.

The Board elected Mr. Armando Anido as our Chief Executive Officer and President, effective July 17, 2006, replacing Ms. Gerri A. Henwood. Based on its review of data from its executive compensation consultant and taking into consideration Mr. Anido’s experience with respect to commercializing products and minimizing the period between launch and peak sales as well as his overall experience in senior management and the current market conditions for recruiting individual’s with these critical skills, the Compensation Committee set Mr. Anido’s base salary for 2006 at $450,000.

Short-Term Incentive Awards

To determine bonuses for performance in fiscal 2006, we reviewed information from our executive compensation consultant’s databases regarding the percentage of salary payable as annual bonuses upon

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achievement of target goals at the 50-75^th percentile for comparable executives in order to establish compensation that rewards performance and serves to retain key contributors. We accrue short-term incentive awards based on the target bonus percentage for each named executive officer, so those amounts are reflected in our financial statements for the year ended December 31, 2006 although they are paid in the first quarter of 2007.

In February 2006, the Compensation Committee approved the 2006 Bonus Plan. The plan was intended to motivate employees to achieve 2006 business goals designed to yield increased shareholder value, allow us to attract and retain quality employees by remaining competitive in the local employment market and reinforce a pay-for-performance culture. At this meeting the Compensation Committee determined that the individual bonus awards under the 2006 Bonus Plan would be equal to the product of

The funding multiplier for payout under the 2006 Bonus Plan was based on two equally-weighted metrics:

The Compensation Committee assessed the performance of the Company against these metrics and determined that awards under the 2006 Bonus Plan should be paid out using a 105% funding multiplier.

In order to determine the performance multiplier element of the total short-term incentive award to each named executive officers for performance in 2006, the Compensation Committee, at its February 23, 2007 meeting, reviewed and considered:

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At its meeting on February 23, 2007, the Compensation Committee awarded the following bonus awards for performance in 2006:

Mr. Anido’s employment agreement provides that he is entitled to a guaranteed bonus in the amount of $146,250. At its meeting on February 23, 2007, the Compensation Committee decided to increase this amount to $153,563 due to the Company’s financial and operation achievements in the last half of 2006 when Mr. Anido was CEO.

Long-Term Incentive Awards

To determine long-term incentive awards for performance in fiscal 2005, we reviewed information from our executive compensation consultant’s databases regarding long-term incentive awards to executives at the comparator companies.

Long-term incentive awards are considered an important complement to the elements of our named executive officers’ compensation because they align the executives’ interests with stockholders’ interests. A principal factor influencing the market price of our stock is our performance as reflected in our sales, earnings, cash flow and other results. By granting stock options to our named executive officers, we believe our named executive officers are encouraged to achieve consistent improvements in our performance. The decision as to whether to grant options is made after an evaluation of what form or mix of equity instruments is needed as a retention/incentive tool for the individual executive based upon industry practice, market conditions and the nature of the individual’s expertise at the time the award is considered. Our stockholders have approved the plans under which such awards are made. The exercise price of our option grants equals the closing market price of our stock on the date of such grant, and the effective date of the grant is the date of the meeting of the Compensation Committee at which the grants are approved. With respect to a newly hired executive, his or her employment agreement, which is approved by the Compensation Committee, specifies that any grant of stock options or restricted stock is effective on the effective date of the employment agreement and that the exercise price of the option grant equals the closing market price of our stock on the date of such grant. The options granted by the Compensation Committee generally vest at a rate of 25% per year over the first four years of the ten-year option term. Vesting is based solely on the passage of time and is not performance based. We believe that this vesting period provides a meaningful incentive to our named executive officers to continue their employment with us.

Options will only yield income to the executive if the market price of our stock is greater at the time of exercise than it was when the option was granted. Awards of shares of restricted stock are subject to forfeiture restrictions, which prohibit the recipient from selling such shares until a specified date set forth in the named

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executive officer’s employment agreement. Grants of options and awards of restricted stock provide inducements to the executive officers to remain with us over the long-term, enhance corporate performance and, correspondingly, enhance stockholder value. We do not have stock ownership guidelines or holding requirements.

When determining whether to make grants of stock options or awards of restricted stock, as well as the size of such grants or awards, for fiscal 2005 the Compensation Committee considered:

The Committee granted long-term incentive awards at its meeting on June 6, 2006 instead of at its February meeting because of a change to the 2004 Equity Compensation Plan that had to be approved by our stockholders at our annual meeting held on June 6, 2006. At our meeting on June 6, 2006, we decided to grant stock options as set forth on the following table:

Based on the Compensation Committee’s review of data from its executive compensation consultant and taking into consideration Mr. Anido’s experience and market conditions, the Compensation Committee granted Mr. Anido a non-qualified option to purchase 500,000 shares of our common stock at an exercise price per share equal to the last reported sale price of a share of our common stock on the NASDAQ Global Market on July 17, 2006, his date of employment. The option vests 25% per year over four years commencing on July 17, 2006. The option is governed by our standard form nonqualified stock option agreement, including provision for automatic acceleration upon a change of control. In addition, we granted Mr. Anido 200,000 shares of restricted stock. In an effort to create a meaningful incentive for continued employment, the restrictions on these restricted shares will lapse as follows:

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Under the terms of the Company’s Separation Agreement with Ms. Henwood, she was given until June 13, 2007 to exercise all of her options to purchase our common stock, except for those options granted to Ms. Henwood on June 6, 2006, (a total of 434,314 options) which she forfeited. Other than the options granted on June 6, 2006, all of Ms. Henwood’s options to purchase our common stock had vested by July 17, 2006. In addition, the restrictions attached to all of Ms. Henwood’s 30,000 shares of restricted stock lapsed as of July 17, 2006. Please see “Ongoing and Post-Employment Agreements” below for additional details of Ms. Henwood’s Separation and Release Agreement.

Ongoing and Post-Employment Agreements

We have employment agreements that provide severance benefits upon certain types of termination of employment. These agreements have been adopted at various times over the past few years, and they have been designed to be a part of a competitive compensation package. The agreements described below do not include plans that are available generally to our salaried employees and that provide for the same method of allocation of benefits between management and non-management employees.

Employment Agreements

We have employment agreements with respect to each of our named executive officers, which set forth the terms of the named executive officer’s employment. The agreements provide for payments and other benefits if we terminate the named executive officer’s employment without cause or for disability, or if the named executive officer terminates employment for “good reason” upon or within one or two years after a change in control. The agreements also provide that if a change in control occurs and change in control payments are subject to an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended, (the “Code”) we will make additional payments to reimburse the executive for the excise and related taxes imposed under the Code. Additionally, the employment agreements include non-competition, confidentiality, development assignment and non-solicitation covenants. See “Potential Payments Upon Termination or Change in Control” below for detailed descriptions of the provisions in the employment agreements related to severance payments and payments made in the event of a change of control. See “Tax Considerations” below for further information regarding the excise tax reimbursement.

Separation Agreement and General Release and Consulting Agreement with Former Chief Executive Officer and Interim President

The Compensation Committee made separation payments to Ms. Gerri A. Henwood, our former CEO and Interim President, based on the terms of her Employment Agreement. The Compensation Committee also considered Ms. Henwood’s contributions to our performance in 2006. In addition, because of Ms. Henwood’s experience in the area of clinical development and regulatory affairs, the Compensation Committee determined that it would be in our best interests to retain Ms. Henwood as a consultant for a specified period of time. As a result, on June 27, 2006, we entered into a Separation Agreement and General Release with Ms. Henwood, pursuant to which she ceased to be our Chief Executive Officer and Interim President, effective July 17, 2006, and we entered into a Consulting Agreement, effective July 17, 2006.

Under the Separation Agreement and General Release, Ms. Henwood receives:

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In addition, the agreement provides that:

Ms. Henwood continues to be bound by the non-competition, confidentiality, development assignment and non-solicitation covenants contained in her Employment Agreement, dated as of June 5, 2004.

Pursuant to the Consulting Agreement, Ms. Henwood will work for us on a substantial but less than full-time basis as an independent contractor consultant concentrating on a variety of matters related to the our business. The Consulting Agreement is effective July 17, 2006 and continues until March 15, 2007. For her services, Ms. Henwood will receive a gross amount of $162,100, payable as a monthly retainer of $20,262.50.

Pursuant to the Consulting Agreement, Ms. Henwood is obligated to keep confidential all Confidential Information (as defined by the Consulting Agreement) and we own, and Ms. Henwood is obligated to assign to us, all intellectual property and intellectual property rights that (i) result from Ms. Henwood’s performance of her services under the Consulting Agreement; (ii) relate to Ms. Henwood’s work or business with us; or (iii) that result from or are based on our Confidential Information or from the use of our premises or personal property (whether tangible or intangible) owned, leased or contracted for by us.

Either party may terminate the Consulting Agreement at any time and for any reason upon a minimum of 30 days prior notice to the other party. In the event of any such early termination, we must pay any outstanding amounts as of the date of termination. In addition, either party has the right at any time to cancel the Consulting Agreement immediately for non-performance or material breach of the terms and conditions of the Consulting Agreement by the other party; provided, however, that no such termination of the Consulting Agreement shall relieve a breaching party of any liability or obligation it might otherwise have.

Potential Payments Upon Termination or Change in Control

Each of the named executive officer’s employment agreements may be terminated by us at any time for cause or upon 30 days written notice without cause. Under the agreements, if a named executive officer’s employment ends for any reason, we will pay accrued compensation and benefits. If we terminate the employment of any of these executives without cause, or due to their disability, we will be obligated to pay to that named executive officer severance equal to nine months of the named executive officer’s base salary or in the case of our Chief Executive Officer, twelve months of his base salary plus bonus, payable in equal monthly installments. In addition, we would be obligated to pay for continued participation in our group medical, dental and prescription drug programs during the applicable nine-month or twelve-month period after termination of employment or obtain comparable benefits at our cost. Additionally, all outstanding stock options and stock awards held by the named executive officer at the date of termination of employment that would have otherwise become vested and exercisable during the severance period will become vested and exercisable as if the named executive officer had remained employed during the severance period, except in the case of our Chief Financial Officer, Executive Vice President of Research & Development, Business Development and Technical Operations and Senior Vice President of Sales who have 90 days from the date of termination to exercise any stock options and awards vested as of that date.

For purposes of the employment agreements, cause is defined generally to mean:

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If a change of control occurs during the employment term and the named executive officer’s employment is terminated without cause at any time or the named executive officer resigns for good reason during the one-year period following the change of control in the case of our Chief Executive Officer and our Senior Vice President of Sales, or during the two-year period following the change of control in the case of all other named executive officers, the named executive officer will be entitled to the following change of control severance benefits:

For purposes of the employment agreements, good reason includes a substantial reduction of the named executive officers’s duties and responsibilities, relocation to a place of employment more than 50 miles from the named executive officer’s previous place of employment or reduction in the named executive officer’s base salary. In general, a change of control includes:

See the table entitled “Potential Payments Upon Termination or Change in Control” on page 39. See “Ongoing and Post-Employment Agreements” above for a detailed description of the Separation and Release Agreement with our former Chief Executive Officer.

Tax Considerations

Under section 162(m) of the Code, a publicly held corporation may not deduct more than $1 million in a taxable year for certain forms of compensation paid to the chief executive officer and other officers listed on the Summary Compensation Table. Our policy is generally to preserve the federal income tax deductibility of compensation paid to our executives, and certain of our equity awards have been structured to preserve deductibility under section 162(m). Nevertheless, we retain the flexibility to authorize compensation that may not be deductible if we believe it is in our best interests. While we believe that all compensation paid to our executives in 2006 was deductible, some portion of compensation paid in future years may not be deductible as a result of section 162(m).

In the event of a change in control, payments to a named executive officer may be subject to an excise tax, and may not be deductible by us, under sections 280G and 4999 of the Code. The employment agreements

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require that we make additional payments to the named executive officers to reimburse them for excise tax imposed by section 4999 of the Code, as well as other taxes in respect of the additional payments. The employment agreements were implemented to motivate the named executive officers to increase shareholder value while remaining employed by us. We believe that these incentives would be frustrated by the possible imposition of significant excise taxes on the named executive officers, and we did not wish to have the provisions of the named executive officers’ agreements serve as a disincentive to their pursuit of a change in control that might otherwise be in our best interests and those of our stockholders. Accordingly, we decided to provide a payment to reimburse the executives for excise taxes payable in connection with change in control payments, as well as any taxes that accrue as a result of our reimbursement. See the table entitled “Potential Payments Upon Termination or Change in Control” on page 39.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE

Winston J. Churchill, Chairman

Philippe O. Chambon, M.D., Ph.D.

Rolf A. Classon

Oliver S. Fetzer, Ph.D.

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Compensation of Executive Officers

Summary Compensation Table

The table below summarizes the total compensation paid to or earned by each of the named executive officers for the fiscal year ended December 31, 2006.

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Grants of Plan-Based Awards

The table below sets forth certain information with respect to non-equity incentive plan awards, stock awards and options granted during the fiscal year ended December 31, 2006 to each of our executive officers listed in the Summary Compensation Table above.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning each exercise of options during Fiscal 2006 by each of the Named Executives and the fiscal year-end value of unexercised in-the-money options.

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Option Exercises and Stock Vested

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Potential Payments Upon Termination or a Change in Control

The table below reflects the amount of compensation to each of the named executive officers pursuant to each executive’s employment agreement in the event of termination of such executive’s employment for cause or in the event of a change in control, described in detail in “Ongoing and Post-Employment Agreements,” “Potential Payments Upon Termination or a Change in Control,” and “Tax Considerations” in the Compensation Discussion and Analysis. The amount of compensation payable to each named executive officer upon termination without cause and upon termination for good reason following a change in control is shown below. The amounts shown assume that such termination was effective as of December 31, 2006, and thus are estimates of the amounts that would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.

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Compensation of Directors

The following table provides information concerning the compensation of the Company’s non-employee directors for 2006. Directors who are employees of the Company receive no compensation for their services as Directors or as members of Board Committees.

2006 Director Compensation

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Compensation Committee Interlocks and Insider Participation

During Fiscal 2005, the members of our Compensation Committee were Mr. Churchill (Chairman), Dr. Chambon, Mr. Classon, and Dr. Fetzer. None of our executive officers serves as a member of the Compensation Committee, or any other committee serving an equivalent function, of any entity that has one or more of its executive officers serving as members of our Compensation Committee. No member of our Compensation Committee has ever been our employee. The issuance of options to members of our Compensation Committee is discussed herein under the heading “Compensation of Directors” below.

A member of our Compensation Committee, Dr. Chambon, is a Managing Director of New Leaf Venture Partners, L.L.C., or New Leaf. In Fiscal 2006, we paid $377,000 to Lathian Systems, or Lathian, for marketing services. New Leaf has entered into sub-advisory agreements with two investment funds which have investments in Lathian.

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INFORMATION ABOUT STOCK OWNERSHIP,

AND EQUITY COMPENSATION PLAN

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information known to us concerning the beneficial ownership of our common stock as of April 16, 2007 for:

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock that could be issued upon the exercise of outstanding options and warrants held by that person that are currently exercisable or exercisable within 60 days of April 16, 2007 are considered outstanding. These shares, however, are not considered outstanding as of April 16, 2007 when computing the percentage ownership of each other person.

Except as indicated in the footnotes to this table and pursuant to state community property laws, each stockholder named in the table has sole voting and investment power for the shares shown as beneficially owned by them. Percentage of ownership is based on 36,234,467 shares of our common stock outstanding on April 16, 2007.